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State capitalism and the rent-seeking conjecture

Abstract

The notion that state capitalism (an economic system “in which the state functions as the leading economic actor and uses markets primarily for political gain”) is a new form of capitalism emerging in the global arena has been recently advanced by several authors. This paper explores the problem of the nature of this system in the light of these claims to novelty. What are its main features as described by these authors? Is state capitalism distinctive from other forms of capitalism or other types of economic systems? Are we really witnessing the emergence of a new type of economic system? To address such questions the paper starts by trying to place the model of state capitalism within the traditional comparative economic systems framework. The inconclusive result leads to a different approach in which the concept of rent-seeking society is used to underlie the structural similarities between mercantilism, real life socialism and state capitalism. The article argues that the conjecture that what has been labeled “state capitalism” is yet another form of rent-seeking system is both robust and worth further investigating.

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Notes

  1. 1.

    The biggest players are “companies such as Saudi Arabia's Saudi Aramco; the National Iranian Oil Company; Petróleos de Venezuela, S.A.; Russia's Gazprom and Rosneft; the China National Petroleum Corporation; Malaysia's Petronas; and Brazil's Petrobras” (Bremmer 2009).

  2. 2.

    Rent-seeking is thus predicted to occur if and only if both of those cost-and-benefits conditions hold. The social welfare loss due to rent-seeking is a lot more than just the deadweight loss due to the increase in price from P to R (Tullock 1967). Besides all the forgone productive activities of the producers that have been eliminated from the market by the regulations, the social cost also includes all the forgone productive activities of the producers that would have involved an efficient use of the resources, but which instead have been employed in lobbying. Last but not least, it includes all the forgone productive government activities, which could have involved the use of resources for providing certain public goods, but instead have involved the use of resources merely for enforcing the privileging regulations and for assuring that they don’t lose power.

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Acknowledgments

The authors would like to thank Amar Bhide, Tyler Cowen, Peter Boettke, Hugo Joaquin Faria, Daniel Morales, Arthur M. Diamond, Jr. and two anonymous reviewers for their comments. The usual caveat applies.

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Correspondence to Paul Dragos Aligica.

Appendix: Adjustments of the standard comparative economic systems framework

Appendix: Adjustments of the standard comparative economic systems framework

The first problem is that the initial classification scheme as advanced by Holesovsky (1977) doesn’t make explicit the “power vs. plenty” criterion, as a separate variable in the classification. However, this criterion is not only used in the classification, but it actually plays a very important part in it. Hence, we amend the “function of the property rights system” dimension of his scheme, identifying four possible functions: economic efficiency, social justice, rent-seeking by domestic interest groups, international political goals (power, national interest). It is also worth emphasizing that these criteria are not mutually exclusive, and when more than one of them is present, it means that there is a trade-off between them.

A second problem is that the initial scheme makes too much of the separation between labor and the owners of capital. The entire body of modern economic theory, from standard macroeconomic growth models (Romer 2011) all the way to Austrian economics (Mises 1946), sees the supposed separation between a class of people who only have their labor and another, entirely distinct, class of people who invest and who own capital, as a mistake. Fortunately, this error is easier to fix than one might think at first glance. Holesovsky uses the concept of “wage labor” to mean two simultaneous things, namely the fact that there exists a free contractual relationship between labor and employers (owners of capital) and the fact that labor owns no capital and does not invest. We are using the term to mean only the first part. As such, the amended classification becomes fully functional and relevant, because it allows for the existence of wage labor that, at the same time, invests and owns capital (in the initial framework, this category was deemed impossible).

Finally, a third amendment has to be made to the way older generations of comparativists have built their definitions. This is necessary because, like most scholars of his generation, Holesovsky (in his otherwise rather sophisticated taxonomy) did not explicitly consider the possibility that, when building models, some of the basic criteria can also be connected by ‘or’ (logical inclusive or) rather than solely by ‘and’. We are hence applying the more elaborated approach to the problem of classification, inspired by the more recent work done by authors such as Ragin (1987, 1994), Gerring (2001) and Goertz (2005).

Despite these adjustments, the definitions in the main text are retaining the spirit and letter of classical comparative economic systems in their essential lines, and draw their justification from that literature. In fact, some of the alternatives connected here by ‘or’ are also presented as such by Holesovsky himself in a rather confusing way which attempts, and largely fails, to put them all together in a single figure. By using Gerring-Goertz logical-combinatorial approach, we can reconstruct and present the initial classification and selected models in a much simpler and clearer fashion (the presence of ‘or’ marking either the possibility of a diversity of systems or the existence of a trade-off within the system).

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Aligica, P.D., Tarko, V. State capitalism and the rent-seeking conjecture. Const Polit Econ 23, 357–379 (2012). https://doi.org/10.1007/s10602-012-9128-1

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Keywords

  • State capitalism
  • Mercantilism
  • Rent-seeking
  • Comparative economic systems
  • Political economy

JEL Classification

  • P10
  • P16
  • P20
  • P51
  • D72
  • F59